1 Q2 & HY 2012 Results Press release 6 August 2012
2 Q2 & HY 2012 Results PostNL Page 2 Table of contents General Highlights Q2 3 CEO statement 3 Review of operations Q2 4 Review of operations HY 5 Stake in TNT Express N.V. 5 Pensions 5 Consolidated equity 5 Interim dividend Summary outlook Segmental overview Key figures per segment 7 Mail in the Netherlands 7 Parcels 7 International 8 PostNL Other 8 Reporting responsibilities and risks Related party transactions 9 Auditor s involvement 9 Board of Management compliance statement 9 Risks 9 Consolidated interim financial statements General information and description of our business 10 Demerger Express 10 Basis of preparation 10 Shareholding in TNT Express 10 Segment information 11 Consolidated statement of financial position 12 Consolidated income statement 13 Consolidated statement of comprehensive income 13 Consolidated statement of cash flows 14 Consolidated statement of changes in equity 15 Notes to the consolidated interim financial statements 16 Other Working days 22 Press releases since the first quarter 2012 results 22 Financial calendar 22 Contact information 23 Additional information 23 Warning about forward-looking statements 23
3 Q2 & HY 2012 Results PostNL Page 3 Quality issues and delay of letter mail reorganisation impacting Q2 results Highlights Q2 Underlying revenues down 0.2% to 1,022 million Underlying cash operating income 10 million Net debt increased by 129 million versus end 2011 to 1,131 million Performance Mail in the Netherlands impacted by additional costs and delay of letter mail reorganisation Good performance Parcels and International Interim dividend 2012: per share to be paid fully in shares Key figures Q2 & HY 2012 in millions, except where noted Q Q % Change HY 2012 HY 2011 % Change Revenues 1,040 1, % 2,107 2, % Operating income % % Operating margin 7.6% 9.1% 9.5% 10.2% Underlying revenues 1,022 1, % 2,083 2, % Underlying operating income % % Underlying operating margin 9.5% 8.7% 10.6% 9.8% Underlying cash operating income % % Underlying cash operating margin 1.0% 2.4% 2.8% 4.7% Impairment of investments in associates - (397) 570 (397) Profit from continuing operations 43 (340) 684 (271) Profit from discontinued operations - 2,105-2,159 Profit for the period 43 1, % 684 1, % Profit for the period (excluding TNT Express) % % Net cash from operating activities (72) (15) (55) 69 CEO statement Herna Verhagen, CEO of PostNL, states: The second quarter continued the weaker than anticipated start to the year. Parcels showed good volume and revenue growth in all business lines and a strong operational performance. Trans-o-flex contributed positively to revenue and results. Also, International contributed positively to overall underlying cash operating income. The quality issues that had started in March in Mail in the Netherlands resulted in additional costs and in the delay of the letter mail reorganisation, both clearly impacting the Q2 performance. In April, the decision was taken to stop the roll out temporarily because of larger than expected problems resulting in quality issues. During my first full quarter as CEO of PostNL, my priorities were to improve quality in order to retain customers. We established measures and solutions to facilitate a controlled roll out of the letter mail reorganisation. We are currently piloting these solutions, which we developed in dialogue with the Works Council. After a careful review of the results, we will take a decision with respect to the further roll out of the reorganisation at the latest in Q4. We remain confident we will reach our longer term savings targets. Looking at our performance during the first two quarters of the year, we reaffirm our underlying cash operating income outlook for the year, although we expect that the full year result will be at the bottom half of the range. The outlook is sensitive to further developments in the roll out of Master plans and the sale of real estate. We announce an interim dividend of 75 million to be paid fully in shares. Note: underlying figures are at constant currency and exclude one-offs as detailed on page 4
4 Q2 & HY 2012 Results PostNL Page 4 Review of operations Q2 Reconciliation Q in millions Reported Q One-offs Foreign exchange Underlying Q Underlying Q One-offs Reported Q Mail in NL Parcels International (18) PostNL Other Intercompany (145) - - (145) (115) 0 (115) Revenues 1,040 0 (18) 1,022 1, ,024 Mail in NL Parcels International (2) 7 (9) PostNL Other (11) 41 Operating income (4) 93 Changes in provisions* (37) (21) Changes in pension liabilities (50) (43) Underlying cash operating income As percentage of underlying revenues 1.0% 2.4% * Excluding one-offs Reported revenues increased year on year by 1.6% to 1,040 million, and reported operating income decreased to 79 million. The foreign exchange effect of 18 million was caused by the increase in the value of the GBP versus the EUR with a positive effect on reported revenues. Underlying revenues in Q were 1,022 million, a decrease of 0.2% compared to the prior year. Growth in Parcels and International almost compensated the declining revenues in Mail in the Netherlands, PostNL Other and higher eliminations. Underlying operating income increased by 9.0% to 97 million, which represents an underlying operating margin of 9.5% (Q2 2011: 8.7%). This increase is due to the drop in mail volumes and price/ mix changes in Mail in NL ( 13 million), additional costs for inefficiency and quality measures( 10 million), higher autonomous costs ( 10 million) and increased Master plan implementation costs ( 6 million), more than offset by lower pension expenses ( 15 million), Master plan savings ( 6 million), improved contributions from Parcels and International ( 21 million) and other items ( 5 million). The one-offs of 18 million in Q consist of 9 million (of which 7 million in Mail in the Netherlands and 2 million in PostNL Other) for restructuring related charges, 6 million for rebranding costs in Mail in the Netherlands and 3 million from results related to TNT Express in PostNL Other. In Q2 2011, the total one-offs amounted to (4) million, of which 7 million was for resizing International and (11) million in PostNL Other for the book gain on the sale of De Belgische Distributiedienst ( 38 million profit), demerger costs ( 23 million) and rebranding costs ( 4 million). The graph below explains the net decrease in underlying cash operating income. The change in pension liabilities reflects the difference between the lower pension expenses ( 15 million) and lower pension cash out ( 8 million). The change in provisions mainly reflects higher withdrawals from provisions for higher (voluntary) redundancies and restructuring of Post Offices and Netwerk VSP. Increase of 8 million in underlying operating income 8 (7) 25 (21) 14 7 (16) 10 Underlying cash operating income Q Mail in NL Parcels International PostNL Other Change in pension liabilities Change in provisions excluding one-offs Underlying cash operating income Q Net cash from operating activities was (72) million, 57 million less than the prior year. The higher cash out is mainly explained by higher cash out from working capital of 45 million (mainly in International). At the end of Q2, net debt was 1,131 million, which compares to 1,002 million at the end of 2011.
5 Q2 & HY 2012 Results PostNL Page 5 Review of operations HY Reconciliation HY 2012 in millions Reported HY 2012 One-offs Foreign exchange Underlying HY 2012 Underlying HY 2011 One-offs Reported HY 2011 Mail in NL 1, ,134 1, ,189 Parcels International (24) PostNL Other Intercompany (277) - (277) (233) 0 (233) Revenues 2,107 0 (24) 2,083 2, ,136 Mail in NL Parcels International (4) 7 (11) PostNL Other (16) 66 Operating income (9) 218 Changes in provisions* (59) (38) Changes in pension liabilities (102) (71) Underlying cash operating income As percentage of underlying revenues 2.8% 4.7% * Excluding one-offs Reported revenues decreased year on year by 1.4% to 2,107 million, and reported operating income decreased to 200 million. Underlying revenues decreased by 2.5% compared to the prior year. Growth in Parcels and International not fully compensated the declining revenues in Mail in the Netherlands, PostNL Other and higher eliminations. Underlying cash operating income decreased by 41.0% to 59 million, which represents an underlying cash operating margin of 2.8% (HY 2011: 4.7%). This decrease is caused by a lower performance in Mail in the Netherlands and higher cash out from provisions, only partly offset by better performance in Parcels and International. Stake in TNT Express N.V. On 19 March 2012, United Parcel Service (UPS) and TNT Express announced their agreement on a recommended public offer of 9.50 per ordinary share to be made by UPS for TNT Express. PostNL has signed an irrevocable undertaking with UPS to tender all TNT Express shares held by it under the offer of UPS subject to customary undertakings and conditions. On 13 July 2012, UPS and TNT Express indicated that they expect the deal will be closed in Q If the offer is not declared unconditional by 19 September 2012, PostNL is permitted to sell and/or transfer up to 54,320,242 TNT Express shares. It is currently not deemed opportune to consider such a sale and/or transfer. As announced on 22 March 2012, the expected proceeds of the sale of the stake in TNT Express will be used as follows: 1. Debt reduction according to the financial policy 2. Restore cash dividend according to the dividend policy 3. Investment in further portfolio extension 4. De-risking pensions and / or distributing excess cash to shareholders according to the dividend policy. The book value of the stake at the end of Q2 amounted to 1,498 million, 4 million lower than at the end of Q1. Pensions By the end of Q2, the coverage ratio of the main pension fund was 96.6%, including the top up payments considered receivable from PostNL. The coverage ratios as reported by the pension funds of PostNL at the end of Q2 were below the minimum requirement of around 104%. At the end of Q2, the deficit of the pension funds, allocated to PostNL, was around 454 million, resulting in conditional invoices for further top up payments from the pension funds of around 50 million, payable in Q if the minimum required level of around 104% is not reached. PostNL disputes the necessity of the top up payments; the related invoices of 85 million have not been paid. As the pension fund boards have a different opinion, a disputes committee was installed. News from the committee is expected in Q As the coverage ratio of the main pension fund is 96.6% at the end of Q2, PostNL considers a top up payment of 14 million necessary if the coverage ratio is still below the minimum required level at the end of Q3. The pension expense in Q amounted to 15 million (Q2 2011: 30 million). The total cash contributions were 65 million (Q2 2011: 73 million). The pension arrangements and employee contributions for CLA staff are part of the ongoing CLA negotiations. Parties expect to conclude agreement before the end of the year.
6 Q2 & HY 2012 Results PostNL Page 6 Consolidated equity Total equity attributable to equity holders of the parent increased to 1,079 million on 30 June 2012 from 1,033 million as per 31 March This increase is mainly due to the net profit in Q2. The impact of the implementation of the revised IAS 19 (implementation date 1 January 2013) on the 2013 financial position and income statement will be significant. As at 30 June 2012, the net pension asset amounted to 1,099 million. This includes net actuarial losses for an amount of 1,810 million. If these net actuarial losses as per Q had been recognised immediately, this would have impacted equity of PostNL negatively by a net amount of 1,360 million. These amounts are based on current parameters which are heavily dependent on interest rate movements. Interim dividend 2012 It is PostNL s intention to pay out a dividend per share which develops substantially in line with the development of its operational performance. PostNL will aim for a dividend pay out of around 75% of the underlying net cash income with a minimum of 150 million per year plus the pass-through of dividend received from TNT Express. PostNL anticipates paying interim and final dividends annually in cash or shares with the interim dividend set at 75 million. PostNL will pay out dividend in cash if and when consolidated equity is positive and the company has certainty of a BBB+/Baa1 credit rating. Currently, PostNL s credit rating is BBB, so one of the conditions for paying out dividend in cash is not met. In line with the policy, the Board of Management of PostNL has decided, with the approval of the Supervisory Board, to declare an interim dividend 2012 of per ordinary share with a nominal value of 0.08 per share. TNT Express has not declared an interim dividend. The interim dividend is payable wholly in shares and will be paid free of withholding tax. It will in principle be sourced from the additional paid-in capital that is recognised for Dutch dividend withholding tax purposes. The distributable corporate equity was 455 million on 30 June The conversion rate will be based on the volume-weighted average share price for all PostNL N.V. shares traded on NYSE Euronext Amsterdam over the three trading day period from 7 August 2012 up to and including 9 August 2012 and will be targeted at no premium. There will be no trading in the stock dividend rights. The ex-dividend date will be 7 August 2012, the record date 9 August 2012 and the dividend will be payable as from 13 August Summary outlook 2012 On the basis of our Q2 results, we expect total revenues to be in line with 2011 as Mail in the Netherlands is expected to show a mid single digit decline, rather than the previously indicated low single digit decline, and Parcels is expected to exceed the high single digit revenue outlook due to the acquisition of Trans-o-flex. We reaffirm our outlook for underlying cash operating income of 110 million 160 million, although we expect the result to be at the bottom half of the range because of the delay in the reorganisation impacting Master plan savings and implementation costs. Also we expect lower proceeds from the sale of real estate because of this delay and the overall weak real estate market in the Netherlands. The outlook is sensitive to further developments in the roll out of Master plans and the sale of real estate. Underlying revenues Underlying cash operating income / margin in millions, except where noted revised Mail in NL 2,429 - low single digit - mid single digit 6.3% 1 to 3% Parcels high single digit* + low double digit 15.1% 13 to 15% International 1,467 + high single digit + high single digit 0.3% 1 to 2% Total 4,297 + low single digit stable to % 2 to 4% *Due to shift registered mail from Mail in the Netherlands to Parcels
7 Q2 & HY 2012 Results PostNL Page 7 Segmental overview Key figures per segment in millions, except where noted Underlying revenues Underlying operating income Underlying cash operating income Q Q % Change Q Q % Change Q Q % Change Mail in NL % % (24) % Parcels % % % International % 5 (2) 350.0% 5 (2) 350.0% PostNL Other % % (6) (6) 0.0% Intercompany (145) (115) -26.1% 0.0% 0.0% PostNL 1,022 1, % % % Note: underlying figures are at constant currency and exclude one-offs in millions, except where noted Underlying revenues Underlying operating income Underlying cash operating income HY 2012 HY 2011 % Change HY 2012 HY 2011 % Change HY 2012 HY 2011 % Change Mail in NL 1,134 1, % % (3) % Parcels % % % International % 10 (4) 350.0% 10 (3) 433.3% PostNL Other % % (6) (11) 45.5% Intercompany (277) (233) -18.9% 0.0% 0.0% PostNL 2,083 2, % % % Note: underlying figures are at constant currency and exclude one-offs Mail in the Netherlands Mail in the Netherlands addressed mail volumes declined by 8.3%, in line with guidance. The main reason for this decline remains substitution. Underlying revenues declined by 3.8%. The positive price effect on addressed mail was partly offset by a negative mix effect as the decline in single items was larger than the bulk mail decline. Underlying operating income in Mail in the Netherlands decreased by 21 million to 19 million. Lower addressed volumes, partly offset by a positive price and mix effect, are the main reason for this decline ( 13 million). Additional costs for inefficiency and quality measures were 10 million. Autonomous cost increases had a negative impact of 10 million and Master plan implementation costs were 6 million higher than the previous year. Master plan savings of 6 million, lower pension expenses ( 8 million) and other ( 4 million) partly offset this. Underlying cash operating income decreased by 36 million to (24) million, due to lower operating income ( 21 million) and higher cash out from provisions ( 15 million). The complex implementation of the letter mail reorganisation turned out to have a large impact on the quality of mail delivery. As a consequence, additional costs have been made to enhance the delivery quality and level of productivity. Master plan savings in the quarter were also lower than anticipated. In April, the decision was taken to temporarily stop the roll out because of larger than expected problems resulting in quality issues. During Q2, PostNL analysed the issues that had arisen from the complex roll out of the reorganisation of the letter mail. PostNL took necessary actions which improved quality and reorganisation communication to our customers. In dialogue with the Works Council we have developed plans for a controlled and phased roll out. We are currently piloting these solutions that will enhance the service levels of existing Central Preparation Locations and are planning to migrate two local offices in Q4. After a careful review of the results, we will take a decision with respect to the further roll out of the reorganisation at the latest in Q4. Significant developments in the regulatory environment of Mail in the Netherlands: 1. Monday delivery / USO obligation: the government is preparing new legislation to make changes to the USO, such as removing the mandatory delivery on Mondays 2. Net cost compensation: PostNL has submitted an application with the regulator (OPTA) for compensation of the net costs of the universal service obligation (USO) for PostNL assesses these net costs at 107 to 125 million. OPTA will review the PostNL application. After determination of the net costs, the costs need to be split between the postal companies in the Netherlands.
8 Q2 & HY 2012 Results PostNL Page 8 3. Significant Market Power: the government is preparing new legislation which involves tools for the regulator to stimulate competition and protect consumers in the postal sector. PostNL has taken note of the proposals by the government and has formally stated its disagreements with the need for further regulation. PostNL expects that the government will present its proposal to parliament later in the year. Parcels Parcels continued to improve volumes (+6% like for like). Revenues grew strongly (+21.9%), mainly due to the acquisition of Trans-o-flex and the shift of registered mail from Mail in the Netherlands to Parcels, partly offset by a small negative price/mix effect. Underlying (cash) operating income improved by 14 million. Of this improvement, 11 million can be explained by a loss compensation ( 13 million) arising from the acquisition of Trans-o-flex offset by an operational result of (2) million. In the second half of the year we envisage further operational losses and restructuring costs of the Dutch and Belgian activities. The remaining part is due to the continuation of revenue growth and strong operational performance. As a result of the additional volume and the increased usage of the new logistical infrastructure (NLI), the strong operational performance continued with total costs per parcel decreasing again. New initiatives such as and Mikropakket showed good performances. The progress on the new logistical infrastructure is on track. During the quarter, the locations in Den Bosch and Hengelo started operations. Already nine of the old distribution centres have been closed. Currently, around 20% of the volumes are running through the new infrastructure. In Q2, capital expenditures for NLI were 15 million. International Underlying revenues in millions Q Q HY 2012 HY 2011 UK Germany Italy Spring and Other International International underlying revenues increased by 5.4% to 371 million. Excluding the effect of disposals, the increase was 6.8%. Underlying cash operating income improved to 5 million from (2) million in Q mainly due to the effect of the restructuring in Germany. United Kingdom realised 11% underlying revenue growth to 162 million. This is the result of a 5% growth in volumes, combined with a price increase by Royal Mail. National clients showed volume growth which was partly offset by lower regional volumes. The E2E pilot in London is progressing according to plan. The pilot went live in April with 200 deliverers and current volumes are just over 200,000 items per week. An additional delivery unit, also in London, was opened in July. In Germany, revenues amounted to 123 million (like-for-like an increase of 3%). All underlying businesses contributed to the growth. Cost savings are on track, which resulted in an improvement of the underlying result. In Italy, revenues were 49 million (like-for-like, an increase of 8%). Formula Certa s volumes and revenues successfully continued to demonstrate strong growth on the back of further network expansion, uptrading and new customer wins. The coverage of Formula Certa now is 66% of households. PostNL Other PostNL Other represents head office entities, including the difference between the recorded IFRS employer pension expense for the defined benefit pension plans and the actual cash payments received from the other segments. The latter accounts for 32 million of operating income (Q2 2011: 25 million). Underlying operating income increased to 38 million (Q2 2011: 30 million), mainly due to the pension effect in operating income. Underlying cash operating income was (6) million, the same as last year.
9 Q2 & HY 2012 Results PostNL Page 9 Reporting responsibilities and risks Related party transactions Major related party transactions are disclosed in note 12 to the consolidated interim financial statements. Auditor s involvement The content of this interim financial report has not been audited or reviewed by an external auditor. Board of Management compliance statement In conjunction with the EU Transparency Directive as incorporated in the Dutch Financial Markets Supervision Act (Wet op het Financieel Toezicht) the Board of Management confirms to the best of its knowledge that: - The consolidated interim financial statements for the six months ended 30 June 2012 give a true and fair view of the assets, liabilities, financial position and profit or loss of PostNL N.V. and its consolidated companies, and - The interim report of the Board of Management gives a fair review of the information required pursuant to section 5:25d(8)/(9) of the Dutch Financial Markets Supervision Act (Wet op het Financieel Toezicht). Herna Verhagen Chief Executive Officer The Hague, 6 August 2012 Jan Bos Chief Financial Officer Gérard Aben HR Risks Understanding strategic, operational, compliance and financial risks is a vital element of PostNL's management decision-making processes. PostNL's risk management and control programme is not a means to an end but a process to support management. No matter how good a risk management and control system may be, it cannot be assumed to be exhaustive nor can it provide certainty that it will prevent negative developments in PostNL's business and business environment from occurring or its mitigating actions to be fully effective. It is important to note that new risks could be identified that are not known currently. However, any of the known specific key risks could have a material adverse effect on PostNL's financial position, results of operations, liquidity and the actual outcome of matters referred to in the forward-looking statements contained in this half year report. The Board of Management has reviewed PostNL s risk profile and confirms that the key risks originally disclosed in Chapter 11 of the 2011 PostNL N.V. Annual Report (pages 40 42) have been updated but remain and will continue to require focused and decisive management attention in the second half of Specific attention will be given to pensions, regulation and the consequences of the delay in the implementation of the Master plans. Further details on this can be found in the related chapters of this half year report.
10 Q2 & HY 2012 Results PostNL Page 10 Consolidated interim financial statements General information and description of our business The interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting and have not been audited or reviewed by an external auditor. PostNL N.V. ( PostNL or the Company ) is a public limited liability company with its registered seat and head office in s-gravenhage, the Netherlands. PostNL provides businesses and consumers in the Benelux, Germany, the UK and Italy with an extensive range of services for their mail needs. PostNL s services involve collecting, sorting, transporting and delivering of letters and parcels for the Company s customers within specific timeframes. The Company also provides services in the area of data and document management, direct marketing and fulfilment. Following the demerger in 2011, PostNL holds a share of 29.8% in TNT Express N.V. ( TNT Express ). Both PostNL N.V. and TNT Express N.V. are listed on NYSE Euronext in Amsterdam. Basis of preparation The information is reported on a year-to-date basis ending 30 June Where material to an understanding of the period starting 1 January 2012 and ending 30 June 2012, further information is disclosed. The interim financial statements were discussed and approved by the Board of Management. The interim financial statements should be read in conjunction with the consolidated 2011 Annual Report of PostNL N.V. as published on 27 February The significant accounting policies applied in these consolidated interim financial statements are consistent with those applied in PostNL s consolidated 2011 annual report for the year ended 31 December Last year, the IASB issued the revised IAS 19 Employee Benefits. The revised IAS 19 was endorsed by the European Union on 5 June 2012 and will be effective as from 1 January The impact of the revised IAS 19 on the 2013 financial position and income statement will be significant. The main change in the revised IAS 19 is the requirement to recognise all actuarial gains and losses immediately. As at 30 June 2012, the net pension asset amounted to 1,099 million. This includes net actuarial losses for an amount of around 1,810 million. If these net actuarial losses as per Q had been recognised immediately, this would have impacted equity of PostNL negatively by a net amount of around 1,360 million, based on the current parameters which are heavily dependent on interest rate movements. The impact of IAS 19 revised on the income statement, resulting from the replacement of the expected return on plan assets by the lower discount rate and the cancellation of the amortisation of the unrecognised losses, would have affected the 2012 income statement by an estimated full year increase in pension expenses of around 35 million (based on the parameters at 1 January 2012). The measure of profit and loss and assets and liabilities is based on the Group Accounting Policies, which are compliant with IFRS as endorsed by the European Union. The pricing of inter-company transactions is done at arm s length. Shareholding in TNT Express On 19 March 2012, United Parcel Service (UPS) and TNT Express announced their agreement on a recommended public offer of 9.50 per ordinary share to be made by UPS for TNT Express. PostNL signed an irrevocable undertaking with UPS to tender all TNT Express shares held by it under the offer of UPS subject to customary undertakings and conditions. Over Q1 2012, PostNL s share in net earnings and direct equity movements of TNT Express was included in the consolidated income statement using the equity method taking into account additional depreciation and amortisation ( purchase price adjustments ). The total impact of the purchase price adjustments amounted to 4 million. The share price of TNT Express increased from 5.77 as per 30 December 2011 to 9.26 as per 30 March 2012 resulting in a reversal of the impairment charge of 570 million. As a result of the UPS offer and PostNL s irrevocable undertaking, at the end of Q the stake in TNT Express was transferred from investments in associates to assets held for sale. IFRS 5 Assets held for sale requires assets to be valued at the lower of their fair value less cost to sell and their carrying value. In Q the share price of TNT Express decreased to 9.24 as per 29 June 2012 resulting in an adjustment of 4 million decreasing the value of the stake in TNT Express to its market value of 1,498 million as per 30 June 2012.
11 Q2 & HY 2012 Results PostNL Page 11 On 13 July 2012, UPS and TNT Express announced that the acquisition of TNT Express by UPS is expected to be completed in Q On 20 July 2012, the European Commission announced that the review of the proposed acquisition of TNT Express by UPS has moved to a Phase II review, as there are certain areas that require more time to analyse. Segment information PostNL operates its businesses through the reportable segments Mail in the Netherlands, Parcels, International and PostNL Other. The following table presents the segment information relating to the income statement and total assets of the reportable segments for the first six months of 2012 and HY 2012 ended at 30 June 2012 in millions Net sales Mail in NL 1,065 Parcels 270 International 766 PostNL Other 0 Inter company 0 Total 2,101 Inter-company sales (277) 0 Other operating revenues Total operating revenues 1, (277) 2,107 Other income Depreciation/impairment property, plant and equipment (20) (3) (4) (10) 0 (37) Amortisation/impairment intangibles (7) (2) (2) (1) 0 (12) Adjustment assets held for sale (4) (4) Total operating income Total assets per 30 June ,362 4,697 HY 2011 ended at 2 July 2011 in millions Net sales Mail in NL 1,119 Parcels 259 International 702 PostNL Other 46 Inter company 0 Total 2,126 Inter-company sales (233) 3 Other operating revenues Total operating revenues 1, (233) 2,136 Other income 11 0 (2) Depreciation/impairment property, plant and equipment (24) (3) (3) (7) 0 (37) Amortisation/impairment intangibles (7) (2) (2) (1) 0 (12) Total operating income (11) Total assets per 31 December ,818 4,118 As at 30 June 2012 the total assets within PostNL Other included the stake in TNT Express for an amount of 1,498 million (31 December 2011: 936 million) and pension assets and cash. Total operating income of PostNL Other does not include the results from investments in associates or the results from discontinued operations as these are presented below operating income.
12 Q2 & HY 2012 Results PostNL Page 12 Consolidated statement of financial position in millions note 30 June December 2011 Assets Non-current assets Intangible assets Goodwill Other intangible assets Total (1) Property, plant and equipment Land and buildings Plant and equipment Other Construction in progress Total (2) Financial fixed assets Investments in associates (3) Other loans receivable 1 2 Deferred tax assets Other financial fixed assets 1 1 Total Pension assets (4) 1,309 1,217 Total non-current assets 2,024 2,807 Current assets Inventory 9 9 Trade accounts receivable Accounts receivable Income tax receivable 4 3 Prepayments and accrued income Cash and cash equivalents (6) Total current assets 1,128 1,259 Assets classified as held for sale (3) 1, Total assets 4,697 4,118 Liabilities and equity Equity Equity attributable to the equity holders of the parent 1, Non-controlling interests Total (5) 1, Non-current liabilities Deferred tax liabilities Provisions for pension liabilities (4) Other provisions (7) Long term debt (6) 1,608 1,607 Total 2,405 2,368 Current liabilities Trade accounts payable Other provisions (7) Other current liabilities Income tax payable Accrued current liabilities Total 1,200 1,336 Total liabilities and equity 4,697 4,118
13 Q2 & HY 2012 Results PostNL Page 13 Consolidated income statement in millions note Q Q HY 2012 HY 2011 Net sales 1,037 1,021 2,101 2,129 Other operating revenues Total revenues 1,040 1,024 2,107 2,136 Other income Cost of materials (44) (48) (90) (97) Work contracted out and other external expenses (523) (460) (1,023) (949) Salaries, pensions and social security contributions (331) (362) (665) (735) Depreciation, amortisation and impairments (29) (25) (53) (49) Other operating expenses (51) (73) (102) (134) Total operating expenses (978) (968) (1,933) (1,964) Operating income Interest and similar income Interest and similar expenses (29) (30) (56) (63) Net financial expenses (26) (26) (52) (53) Results from investments in associates (3) Impairment of investments in associates (3) - (397) 570 (397) Profit/(loss) before income taxes 53 (327) 719 (229) Income taxes (8) (10) (13) (35) (42) Profit/(loss) from continuing operations 43 (340) 684 (271) Profit from discontinued operations - 2,105-2,159 Profit for the period 43 1, ,888 Attributable to: Non-controlling interests - (1) - (1) Equity holders of the parent 43 1, ,889 Earnings per ordinary share (in cents) Earnings from continuing operations per ordinary share (in cents) (90.2) (71.9) Earnings from discontinued operations per ordinary share (in cents) For 2012 based on an average of 398,647,194 of outstanding ordinary shares (2011: 378,468,906). Consolidated statement of comprehensive income in millions Q Q HY 2012 HY 2011 Profit for the period 43 1, ,888 Gains/(losses) on cashflow hedges, net of tax 4 (9) 1 13 Currency translation adjustment, net of tax 1 (1) 1 (1) Impact share changes other comprehensive income associates 0 0 (5) Continued operations 5 (10) (3) 12 Gains/(losses) on cashflow hedges, net of tax Currency translation adjustment, net of tax Discontinued operations Total other comprehensive income for the period (3) 83 Total comprehensive income for the period 48 1, ,971 Attributable to: Non-controlling interests - (1) 0 (1) Equity holders of the parent 48 1, ,972 The profit for the period related to TNT Express is reported as a result from discontinued operations during the first five months of 2011 (refer to 'Profit from discontinued operations') investments in associates from June 2011 until Q (refer to Results from / Impairment of investments in associates ) assets classified as held for sale from Q (with a dividend received of 1 million in Other income and an adjustment held for sale of 4 million in Depreciation, amortisation and impairments ). In HY 2012, profit for the period excluding the results from TNT Express is 116 million (Q2 2012: 46 million). In HY 2011, profit for the period excluding the results from TNT Express was 123 million (Q2 2011: 54 million).
14 Q2 & HY 2012 Results PostNL Page 14 Consolidated statement of cash flows in millions and over the period note Q Q HY 2012 HY 2011 Cash flows from continuing operations Profit/(loss) before income taxes 53 (327) 719 (229) Adjustments for: Depreciation, amortisation and impairments Share based payments (Profit)/loss on assets held for sale (2) (3) (11) (11) (Profit)/loss on sale of Group companies/joint ventures (1) (32) (1) (32) Badwill on acquisition of Group companies (13) - (13) - Interest and similar income (3) (4) (4) (10) Interest and similar expenses Impairments and results of investments in associates (571) 394 Total investment income (544) 404 Pension liabilities (50) (43) (102) (76) Other provisions (28) (21) (50) (38) Total changes in provisions (78) (64) (152) (114) Inventory 1 (1) - (2) Trade accounts receivable (15) (7) 6 31 Other accounts receivable 10 (2) 6 1 Other current assets (6) - (47) (57) Trade accounts payable Other current liabilities excluding short term financing and taxes (78) (51) (47) (52) Total changes in working capital (66) (20) (75) (21) Cash generated from operations (52) Interest paid (16) (16) (19) (18) Income taxes received/(paid) (8) (4) (5) (37) (11) Net cash from operating activities (9) (72) (15) (55) 69 Interest received Dividends received Acquisition of subsidiairies and joint ventures (net of cash) Disposal of subsidiaires and joint ventures Capital expenditure on intangible assets (8) (5) (14) (9) Capital expenditure on property, plant and equipment (52) (11) (93) (27) Proceeds from sale of property, plant and equipment Changes in non-controlling interests (1) - (1) - Net cash from/(used in) investing activities (9) (41) 122 (65) 133 Cash settlement share based transactions (2) (4) (2) (6) Proceeds from long term borrowings Proceeds from short term borrowings Repayments of short term borrowings (15) (3) (74) (3) Repayments of finance leases (1) - (1) (1) Dividends paid - (7) - (44) Financing related to discontinued business Net cash from/(used in) financing activities (18) 572 (66) 461 Change in cash from continuing operations (131) 679 (186) 663 Cash flows from discontinued operations Net cash from operating activities - (29) (53) Net cash used in investing activities - (37) (86) Net cash used in financing activities - (517) (446) Change in cash from discontinued operations - (583) - (585) Total changes in cash (131) 96 (186) 78
15 Q2 & HY 2012 Results PostNL Page 15 Consolidated statement of changes in equity in millions Issued share capital Additional paid in capital Translation reserve Hedge reserve Other reserves Retained earnings Attributable to equity holders of the parent Noncontrolling interests Balance at 31 December (41) (43) 1, , ,443 Total comprehensive income ,889 1,972 (1) 1,971 Appropriation of net income 248 (248) - - Demerger (867) (2,929) (3,796) (3,796) Second interim dividend (2) (44) (44) (44) Share based compensation Other (3) (3) (1) (4) Total direct changes in equity 2 (869) 0 0 (2,671) (292) (3,830) (1) (3,831) Balance at 2 July (8) (1,504) 1, Total equity Balance at 31 December (12) (1,478) 1, Total comprehensive income 1 1 (5) Appropriation of net income 1,091 (1,091) 0 0 Final dividend previous year 2 (2) 0 0 Other (2) (2) (1) (3) Total direct changes in equity 2 (2) 0 0 1,089 (1,091) (2) (1) (3) Balance at 30 June (11) (394) 1,293 1, ,092
16 Q2 & HY 2012 Results PostNL Page 16 Notes to the consolidated interim financial statements 1. Intangible assets in millions Balance at 1 January Additions 14 9 Disposals 0 (2) Exchange rate differences 0 (1) Amortisation (12) (12) Balance at end of period At Q2 2012, the intangible assets of 178 million consist of goodwill for an amount of 121 million and other intangible assets for an amount of 57 million. Goodwill arises from acquisitions in the past in the segments Mail in the Netherlands ( 67 million), International ( 51 million) and Parcels ( 3 million). The additions to the intangible assets of 14 million (2011: 9 million) concern additions to software including prepayments for software. 2. Property, plant and equipment in millions Balance at 1 January Capital expenditures Acquisitions 3 0 Disposals (5) (19) Exchange rate differences 0 (1) Depreciation and impairments (37) (37) Transfers to assets held for sale 0 (23) Balance at end of period Capital expenditures of 93 million mainly concern investments of 26 million relating to the New Logistics Infrastructure and of 43 million relating to Master plan related projects. The disposals in HY 2011 mainly related to the sale of head office investments to TNT Express. 3. Investments in associates/assets classified as held for sale The initial value of PostNL s investment in TNT Express as per 1 June 2011 amounted to 1,583 million based on a share price of During 2011, impairment charges were recorded of 636 million to reduce the value of the stake to the market value of 936 million based on a share price of 5.77 as per 31 December The following table presents the changes of the carrying value of the TNT Express stake during HY in millions Q HY 2012 Balance at 1 January 936 Share in net result 5 Purchase price adjustments * (4) Share in direct equity movements (5) Reversal impairments 570 Adjustment held for sale (4) Balance at 30 June ,498 * The purchase price adjustments may include the reversal of fair value adjustments included in the net result of TNT Express and additional net depreciation and amortisation charges following the fair value adjustments identified at first recognition. The share in the net result and direct equity movements of TNT Express for 2012 are based on the Q report of TNT Express, as published on 2 May The purchase price adjustments include the net amortisation charge of the identified intangibles for the first quarter of On 19 March 2012, United Parcel Service (UPS) and TNT Express announced their agreement on a recommended public offer of 9.50 per ordinary share to be made by UPS for TNT Express. PostNL signed an
17 Q2 & HY 2012 Results PostNL Page 17 irrevocable undertaking with UPS to tender all TNT Express shares held by it under the offer of UPS subject to customary undertakings and conditions. As a result of the UPS offer, the share price of TNT Express increased to 9.26 as per 30 March 2012 resulting in a reversal of the impairment charge of 570 million. Following the UPS offer, the stake in TNT Express was transferred from investments in associates to assets held for sale. In Q the share price of TNT Express decreased to 9.24 as per 29 June 2012 resulting in an adjustment of 4 million (reported in the line Depreciation, amortisation and impairments ) decreasing the value of the stake in TNT Express to its market value of 1,498 million as per 30 June The fair (market) value has been determined by multiplying the closing share price at 29 June 2012 of 9.24 by the total number of issued ordinary shares held by PostNL of 162,130,035. The following table presents summarised financial information of TNT Express, as reported by TNT Express in its Q report, published on 30 July Condensed information TNT Express N.V. Balances at end of period/results and cashflows over the period 30 June December 2011 Non-current assets 2,814 2,846 Current assets 1,854 1,855 Equity 2,892 2,812 Non-current liabilities Current liabilities 1,396 1,493 HY 2012 HY 2011 Net sales 3,575 3,549 Operating income 114 (33) Profit/(loss) attributable to the shareholders 56 (102) Net cash from operating activities Net cash used in investing activities (23) (88) Net cash used in financing activities (6) (488) Changes in cash and cash equivalents 8 (551) All other investments in associates amounted to 5 million (2011: 4 million). These associates relate mainly to minority shareholdings in Germany within the segment International. The other assets classified as held for sale of 47 million (2011: 52 million) concern buildings held for sale in the Netherlands. 4. Pensions The pension assets and pension liabilities of the various defined benefit pension schemes are presented separately on the balance sheet. The pension assets increased by 92 million and the pension liabilities decreased by 9 million, resulting in a net movement of 101 million. This movement is the net result of the recorded defined benefit pension expenses of 29 million (HY 2011: 55 million) and contributions paid by PostNL to the pension funds and early retirement payments for a total amount of 131 million (HY 2011: 132 million). Included in the defined benefit pension expense of 55 million for HY 2011 is a contribution received from TNT Express of 5 million. During the first six months of 2012, the coverage ratio of PostNL s main pension fund decreased to 96.6% (including the disputed top up invoices, refer to note 13) from 99.8% as per 31 December Equity Total consolidated equity attributable to equity holders of the parent increased to 1,079 million on 30 June 2012 from 400 million as at 31 December The increase of 679 million benefited from the impairment reversal of the stake in TNT Express for an amount of 570 million. Corporate equity Total corporate shareholders equity increased to 2,037 million on 30 June 2012 from 1,918 million as at 31 December The increase of 119 million was mainly due to the corporate profit for the period of
18 Q2 & HY 2012 Results PostNL Page million. The distributable corporate equity amounted to 455 million on 30 June We refer to the 2011 annual report of PostNL N.V. as published on 27 February 2012 for detailed information on the main differences between consolidated and corporate equity resulting from the changed accounting framework in the corporate financial statements of PostNL N.V. in millions 30 Jun 31 Dec 2 Jul Number of issued and outstanding shares of which held by the company Year-to-date average number of shares Year-to-date average number of diluted shares Year-to-date average number of shares on a fully diluted basis Net debt 30 Jun 31 Dec in millions Short term debt 6 63 Long term debt 1,608 1,607 Total interest bearing debt 1,614 1,670 Cash and other interest bearing assets (483) (668) Net debt 1,131 1,002 The net debt position as at 30 June 2012 increased by 129 million compared to 31 December 2011 mainly due to the net cash generated from operations of (55) million and the net cash used in investing activities of (65) million. Reconciliation cash flows in millions Q Q HY 2012 HY 2011 Cash at the beginning of the period Exchange rate differences 1-1 (1) Change in cash from continuing operations (131) 679 (186) 663 Cash at the end of the period Provisions The provisions consist of long term and short term provisions for restructuring, claims and indemnities and other employee benefits. In HY 2012, the balance of the long term and short term provisions decreased by 48 million, from 333 million to 285 million. in millions Balance at 1 January Additions 13 2 Withdrawals (60) (39) Interest 3 4 Releases (3) (1) Other (1) 0 Balance at end of period The additions of 13 million in 2012 related mainly to the Master plan III restructuring programme for 5 million and a restructuring programme in Data & Document Management for 4 million. The additions to the Master Plan III provision resulted from the periodical reassessment of the projected cash outflows, which are largely driven by the expected cash outflows associated with the voluntary and redundancy measures. The withdrawals of 60 million in 2012 related mainly to settlement payments following the execution of Master plan initiatives including the joint venture Postkantoren ( 51 million in total) and the restructuring of the addressed activities of Netwerk VSP ( 2 million).
19 Q2 & HY 2012 Results PostNL Page Taxes Effective Tax Rate HY 2012 HY 2011 Dutch statutory tax rate 25.0% 25.0% Other statutory tax rates 0.6% 1.1% Weighted average statutory tax rate 25.6% 26.1% Non and partly deductible costs 0.5% 1.6% Exempt income -0.1% -5.4% Other -2.8% 3.0% Effective tax rate - before impact of retained stake TNT Express 23.2% 25.3% Impact of retained stake TNT Express -18.3% -43.5% Effective tax rate 4.9% -18.2% The tax expense in PostNL s statement of income in HY 2012 amounted to 35 million (HY 2011: 42 million), or 4.9% (HY 2011: -18.2%) of the profit before tax of 719 million (HY 2011: (229) million). The profit before tax in HY 2012, excluding the impact of the retained stake in TNT Express of 568 million (predominantly covering the reversal of the impairment of last year), would have been 151 million with a corresponding effective tax rate in HY 2012 of 23.2% (HY 2011: 25.3%). Results of the stake in TNT Express are non taxable and impacted the effective tax rate in HY 2012 by -18.3%. The effective tax rate before the impact of the stake in TNT Express in HY 2012, compared to HY 2011, is 2.1% lower. This reduction was mainly caused by the positive balance of lower non deductible costs, a higher tax exempt income in HY 2011 (book gain relating to the sale of Belgische Distributiedienst) and certain one-off items on the line Other (-2.8%, compared to 3.0% in HY 2011). The line Other mainly includes a non taxable component relating to the acquisition of the Dutch and Belgian Trans-o-flex activities, certain prior year adjustments and lower irrecoverable losses for which no deferred tax assets could be recognised. The income tax paid in HY 2012 amounted to 37 million compared to 11 million in HY In order to obtain a payment discount, preliminary tax payments of 33 million were made for the Dutch entities relating to the full year Cash flow statement The net cash from operating activities decreased by 124 million to (55) million from 69 million last year, mainly due to a decrease in cash generated from operations from 98 million in HY 2011 to 1 million in HY 2012 and an increase in taxes paid from 11 million in HY 2011 to 37 million in HY The decrease in cash generated from operations of 97 million was mainly due to higher cash out from working capital ( 54 million), higher cash out from provisions ( 21 million) and lower profits. The net cash used in investing activities increased by 198 million mainly due to lower disposals of subsidiaries of 115 million, higher capital expenditures on PP&E of 66 million and lower proceeds from sale of PP&E of 31 million, partly offset by cash in on acquisition of subsidiaries of 13 million related to the acquisition of Trans-o-flex. The disposals of subsidiaries in 2011 related to the unaddressed international activities in Belgium and Italy. Higher capital expenditures are mainly due to Master plan related projects and the New Logistics Infrastructure. The higher proceeds from the sale of PP&E in HY 2011 related to the sale of head office investments and real estate in Belgium to TNT Express ( 33 million). The net cash used in financing activities decreased from 461 million in HY 2011 to (66) million in HY 2012 mainly related to the received settlement of TNT Express of 498 million in Labour force Headcount 30 Jun 31 Dec Mail in NL 52,837 55,622 Parcels 3,472 2,907 International 5,921 5,777 PostNL Other 1,233 1,202 Total 63,463 65,508